Energy prices remain elevated as the conflict across West Asia continues. As a result, oil and gas stocks are in focus. International brokerage house Nomura maintained its ‘Buy’ rating on Petronet LNG. The brokerage house set a target price of Rs 340, expecting a lift of 37% from the current market price over the next 12 months.
Trading at replacement cost
The brokerage firm noted that the company’s stock has corrected significantly and is now trading at or below the replacement cost of new LNG terminals. Nomura estimated a replacement cost market cap in the range of Rs 35,900–43,400 crore, compared to the current market cap of approximately Rs 37,600 crore.
Dahej terminal’s “Right to Win”
The Dahej terminal holds a massive competitive advantage due to its capex efficiency, having been built at a fraction of current greenfield costs. Furthermore, its advanced infrastructure provides a significant lead over newer terminals, which include eight storage tanks and the ability to handle the world’s largest LNG carriers (Q-Max).
Renewal of gas sales agreements
Petronet is in negotiations to renew its Sale & Purchase Agreements (SP&As) with its promoters GAIL (India), Indian Oil Corporation, and Bharat Petroleum Corporation before they expire in 2028. Nomura’s base case assumes these new agreements will feature a 3% annual tariff escalation (down from the current 5%) without a one-time tariff cut.
Insignificant impact of regasification tariffs
Regasification charges account for only about 5% of the total gas cost to end-users. Because of this, Nomura does not expect a significant tariff cut, as even a 10% reduction would be immaterial to consumers (0.5% impact) but could make newer, low-utilisation terminals economically unviable.
Policy-driven demand growth
The government’s 2026 order promoting piped natural gas (PNG) over LPG for domestic cooking is expected to boost national gas consumption. As domestic gas is increasingly diverted to homes, the resulting shortfall in the industrial and commercial sectors will likely be filled by higher LNG imports.
Petronte LNG share price performance
The share price of Petronet LNG has risen 0.5% in the last five trading sessions. However, the stock has declined 20% in the past one month and 11% in the last six months. Petronet LNG’s share has erased almost 17% over the previous one year.